To capture the ‘real world’ experience of institutions and policy within the Zambezi rural basin, the study highlights differences in perceptions of the policy and institutions of the water sector between those involved in management of the water sector and those using water for their livelihoods. The study is situated within the qualitative paradigm; its unit of analysis is the participants (members of households, policy makers and members of the Village Water Committee). The study has applied a grounded theory methodology (semi-structured interviews). Forty participants were interviewed in the Zambezi rural basin. The research highlights that, the National Water Supply and Sanitation Council as a national regulatory institution has not yet fully provided support in terms of regulatory framework that would enable the rural water sector to sustain the demand of the Zambezi rural basin of Zambia. Despite this, the National Water Supply and Sanitation Council have made some key progress in developing the suitable guidelines within the regulatory framework significant in the management of water sector. The study indicates that institutions such as the Village Water Committee are considered to be crucial for strengthening the water sector in the Zambezi rural basin if given a suitable legal status for its operational water activities. Furthermore, water supply and demand disparity among households in the Zambezi rural basin remains a challenge to be addressed. The study further highlights policy and institutions in terms of their effects on the quality of water and health status of households remain a major concern for the citizens.